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News this past week of two firms shutting down their ETF businesses has added more fodder to the inane-but-ever-present "ETF versus mutual fund" debate. While we will undoubtedly see more pruning in the months to come, exchange-traded funds are not about to disappear. And the mutual-fund firms that offer them are turning out to be the big winners after all.

Online brokerage firm Scottrade announced it was exiting the business entirely, and will liquidate its 15 "FocusShares" ETFs, which had just $100 million in assets, this month. Russell Investments has been more cagey about its plan, announcing in a release that it is "scaling back its dedicated U.S. ETF team," though most industry observers have read this to mean it will soon close down many, if not all, of its ETFs. The firm is laying off 30 people, and the cuts are "senior and severe," according to Scott Burns, Morningstar's director of fund research. Russell's 25 ETFs have $312 million in assets, a tiny portion of the firm's $152 billion in total assets under management.

Meanwhile, the biggest players in the ETF world are, you guessed it, traditional asset managers. BlackRock's 2009 acquisition of Barclays and its iShares group has made it the absolute kingpin of the ETF industry. Its iShares has $482 billion in assets, making up 40% of the $1.2 trillion industry.
State Streetstt -0.3654574986464537%State Street Corp.U.S.: NYSEUSD73.61
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15.805793991416309Market Cap
30459319580.527
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1.6292172968569683% Rev. per Employee
335536More quote details and news »sttinYour ValueYour ChangeShort position
(ticker: STT) is a distant second, with $290 billion in ETF assets. Though third, with $210 billion, Vanguard has seen its ETF assets growing rapidly; it has been the clear winner of overall inflows in the past two years, pulling in $17 billion in 2010, $21 billion in 2011 and $30 billion so far this year. In each time period, Vanguard has acquired nearly twice as many assets as runner-up
BlackRockblk -0.4889975550122249%BlackRock Inc.U.S.: NYSEUSD366.3
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18.7267620020429Market Cap
60885581060.2112
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2.37816019854365% Rev. per Employee
921803More quote details and news »blkinYour ValueYour ChangeShort position
(BLK).

The fastest-growing single ETF by far, however, is BOND, the ticker for Pimco's Total Return ETF, the exchange-traded version of the world's largest mutual fund. Pimco Total Return has amassed $2.5 billion in its five months of existence. The other 132 ETFs launched this year? All of them put together have just $1.8 billion in assets.

"Pimco is a great example that if you're going to be late to the game, you have to bring something very different to the table," says Michael Johnston, co-founder and CEO of ETF Database. "They brought Bill Gross to the table. No other firm can do that."

Mutual-fund families are established brands, and -- providing they do bring something new to the table -- have the marketing, distribution, and customer-service arms that investors are familiar with. So while Scottrade tried to compete on price with Vanguard, investors still shunned them in favor of the better-known manager. "Scottrade and Russell are victims of an incomplete strategy," Burns says. Scottrade launched several core products, but didn't do enough from a marketing standpoint to support them. It also launched its ETFs after Fidelity, Schwab and Vanguard started offering no-cost trading on many ETFs. "They might have seen it as a loss-leader that they no longer need," Johnston says. Russell, in contrast, had an institutional focus, and should have gained more traction among its own clients.

But perhaps more important, Burns says, is that this is just the beginning. "These are just the first shoes to be dropped in a broad shakeout in the asset-management industry," he says. "With Operation Twist, low returns and pressure on active managers from passive strategies -- product pruning in the industry is going to expand beyond ETFs."